I have asked the question in the past … “What happens when the price of an asset falls but the debt remains?” I am now adding to that What if the price of assets (collateral for loans) fall, the debt remains AND we are conjuring up cash to make the interest payments which is resulting in ever-increasing amounts of debt?
This is getting ridiculous. I have said many times that every intervention has to be exponentially larger than the last to get the same outcome as in the last intervention. Just to put this into perspective it took 209 years for our Republic to amass the first TRILLION dollars of debt. Keep in mind that two world wars had been fought and many other military adventures. The last TRILLION in debt was wrung up in 8 weeks. As a matter of fact, just last week we crossed the $33 TRILLION mark in (admitted) debt and just a week later we are at $33.114 TRILLION. That is $114 Billion in a week. (USDebtclock.org) According to Gregory Mannarino that is $833 MILLION of added debt PER HOUR. Keep in mind this doesn’t even count unfunded liabilities, off balance sheet items (wars, etc.) or anything else the government or Federal Reserve may want to keep from us.
In my opinion the situation is critical at the moment. Many hedge funds seem to agree as they are MASSIVELY short the “markets” both stock AND bond. As a matter of fact, the Bank of International Settlements is warning that the short speculators could cause major damage in the bond “market”. Since most assets derive their value from the bond market it could also cause major stock market turmoil.
As we have recently seen sometimes things have a way of working the opposite of what we expect- at least for a while.
In this case, it would appear that the hedge funds by being so short would want to see the “market” fall and that they would do what they could to facilitate that end. The thing to keep in mind here is that, while I expect the attitude of the stock “markets” are down, I would not at all be surprised to see a MAJOR (VERY short-term) rally which could take many by surprise. The reason is the massive short positions being held by the hedge funds. All the Fed would have to do is start buying the most shorted stocks and there could be a large rally from a short-squeeze. This happens when the shorted stock starts to rise. Since there is no limit on the losses if the stock that was shorted keeps rising it would likely cause those hedge funds that are short to cover their positions. Keep in mind that they borrowed the shares to be short and they have to buy the shares to close out the position. The buying of shares to close out the position is what causes the squeeze higher.
My opinion is that, if I see a major rally, I will sell into it. Just like having a 40-year bull “market” in bonds with rates falling from 18% to ZERO over that time frame, the idea of BTFD should now be STR- Sell the rally. The downdraft in rates that encouraged speculation and provided cheap “money” for it appears to be over.
Personally, I am very comfortable with my hard assets because I am not counting on anyone else’s promise to repay me. I am not worried about the next company to go bankrupt and wipe out the value of my stocks. I am not worried about rising interest rates either because while it may cause a pause in the hard assets like gold, silver and commodities at the end of the day people will realize that the rising rates are doing FAR more harm than good as the massive debts built on 0% interest rates become unpayable at 7% plus. This doesn’t even take into account the loss in the price of the bonds as the rates rise. Likely one of the reasons most countries are SELLING treasuries and buying gold.
One good place to measure risk in the “markets” is MMRI (Mannarino Market Risk Indicator). I have watched this for the past year or so and when the indicator hits certain numbers the “markets” suffer. As I am writing this on Wednesday (9-27-2023) the indicator sits at 307. 250 is high risk and 300 is EXTREME risk. Over the past week or so there has been a steep rise. You can just google MMRI to see for yourself.
Be Prepared!
Raymond James does not endorse or have any affiliation with Gregory Mannarino.
Any opinions are those of Mike Savage and not necessarily of those of RJFS or Raymond James. Expressions of opinion are as of this date and are subject to change without notice. The information in this report does not purport to be a complete description of securities, markets or developments referred to in this material. The information has been obtained from sources deemed to be reliable but we do not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct.
Commodities are generally considered speculative because of the significant potential for investment loss. Commodities are volatile investments and should only be a small part of a diversified portfolio. There may be sharp price fluctuations even during periods when prices are overall rising.
Precious Metals, including gold, are subject to special risks including but not limited to: price may be subject to wide fluctuation, the market is relatively limited, the sources are concentrated in countries that have the potential for instability and the market is unregulated.
Diversification does not ensure gains nor protect against loss. Companies mentioned are being provided for information purposes only and is not a complete description, nor is it a recommendation. Investing involves risk regardless of strategy.
